UPDATE 1-Canada's Indigenous communities call for regulatory overhaul after tailings leak

(Recasts with testimony from Indigenous community representatives, adds Imperial and AER comment)

By Nia Williams

April 17 (Reuters) - Indigenous communities in Canada's oil sands region on Monday called for Alberta's energy regulator to be disbanded and replaced following a months-long toxic tailings seepage from Imperial Oil's Kearl oil sands mine.

Community representatives were testifying to a parliamentary committee in Ottawa about the impact of the leak and ongoing concerns about oil sands tailings management.

Imperial, a unit of Exxon Mobil Corp, first detected discoloured water near its Kearl site last May, but the company and the Alberta Energy Regulator (AER) failed to update local First Nations communities when testing showed the water contained tailings, a waste product of mining.

The tailings seepage only became widely publicised in February after a second leak from a drainage pond.

In a March statement, Imperial said it deeply regretted not providing regular communications to communities after its initial update and would take necessary steps to improve communications in future.

Indigenous community representatives said the AER was too sympathetic to industry.

"I think you need to scrap it and build it back. I don't think it's salvageable in its current form," Daniel Stuckless, director of the Fort McKay Métis Nation, told the committee.

Timothy Clark, principal of environmental consultancy Willow Springs Strategic Solutions, which is working with the Fort McMurray Métis Nation, said the AER had undergone "regulatory capture".

"The regulator is constantly pulling the direction of the conversation in the interests of the regulated parties rather than the public interest," Clark said.

The AER has released regular updates on its monitoring of the Kearl leak. On March 2, the regulator said it was always looking to improve relationships and engagement with Indigenous communities. "If this event highlights an opportunity to do so we will pursue it," the regulator added.

Imperial and the AER will testify on Thursday.

On Monday the federal government released details of a new working group to improve monitoring of environmental risks from oil sands tailings ponds. The group will include Indigenous leaders, federal and provincial governments, and oil sands company representatives.

"After analyzing the situation, it is clear the seepage was not communicated to affected communities in a timely or appropriate way by the company or the provincial regulator, nor was the federal government made aware in a timely manner," Canada's Environment Minister Steven Guilbeault said in a statement.

The total volume of oil sands tailings held in ponds reached 1.35 billion cubic metres in 2021, according to the regulator. (Reporting by Nia Williams in British Columbia; Editing by Deepa Babington and Rosalba O'Brien)